Companies seeking to acquire equipment have a range of options to choose from. Generally speaking, procurement strategies should aim to establish a standard process for working with vendors to obtain equipment in a manner agreeable and familiar to both parties.
One often overlooked procurement method is the lease with title transfer strategy – a capital lease procurement method that allows a company to lease equipment and obtain ownership upon the final lease payment. This approach doesn’t differ much from other common procurement strategies, such as traditional leasing or financed purchasing. It’s also very similar to leasing with a $1 buy-out option, but excludes the legal obligation to send the lessor $1 to obtain title of the equipment.
However, lease with title transfer is employed relatively rarely, because it requires organizations to negotiate unique leasing contracts that allow for title to transfer without processing a second transaction. It is also a much more sensitive strategy to negotiate because it takes away the lessor’s opportunity to realize any sort of residual value for the “leased equipment” since it won’t be returned to them.
Despite these potential complications, the lease-to-own strategy can offer many benefits and should not be ignored. A new ISG white paper examines characteristics of the lease with title transfer strategy, and discusses various scenarios where this strategy can be applied.
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